UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-K
 ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the fiscal year ended February 29, 2008
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission File Number 1-10655
 ENVIRONMENTAL TECTONICS CORPORATION
 Pennsylvania
    
    23-1714256(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, par value $.05 per share
    
    American Stock Exchange
   o þ
  o þ
 o þ
 o
  Large Accelerated Filer o
Accelerated Filer o
Non-accelerated Filer o(Do not check if a smaller reporting company)Smaller reporting company þ  o þ
    (1)
    
    The information provided is not an admission that any person whose holdings are excluded from
the figure is not an affiliate or that any person whose holdings are included is an affiliate
and any such admission is hereby disclaimed. The information provided is solely for record
keeping purposes of the Securities and Exchange Commission.




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Explanatory Statement
 Restatement of previously issued financial statements
  Settlement with U.S. Navy
         Audit Committee Review and Regulatory Compliance Matters
   Change in Independent Registered Public Accounting Firm




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Restatement of Previously Filed Financial Statements
         Previously Filed Reports
  Additional Matters Regarding H.F. Lenfest
 Lenfest Acquisition Proposal
  Lenfest Letter Agreement
  Failure to Meet Financial Covenants under Credit Agreement




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ENVIRONMENTAL TECTONICS CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
FEBRUARY 29, 2008
 TABLE OF CONTENTS
 PART I
    
    
    1Item 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    6Item 2. Properties
    
    
    11Item 3. Legal Proceedings
    
    
    13Item 4. Submission of Matters to a Vote of Security Holders
    
    
    13PART II
    
    
    14Item 5. Market for the Registrants Common Stock and Related Security Holder Matters
    
    
    14Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 8. Financial Statements and Supplementary Data
    
    
    16Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    16Item 9A. Controls and Procedures
    
    
    16PART III
    
    
    18Item 10. Directors and Executive Officers of the Registrant
    
    
    18Item 11. Executive Compensation
    
    
    21Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    26Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    27Item 14. Principal Accounting Fees and Services
    
    
    30PART IV
    
    
    31Item 15. Exhibits and Financial Statement Schedules
    
    
    31SIGNATURES
    
    
    34EXHIBIT INDEX
    
    
    35EXHIBIT 13
    
    
    1Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    2Report of Independent Registered Public Accounting Firm
    
    
    16Consolidated Balance Sheets as of February 29, 2008 and February 23, 2007
    
    
    17Consolidated Statements of Operations for the 53 week period ended February 29, 2008 and
the 52 week period ended February 23, 2007
    
    
    18Consolidated Statements of Changes in Stockholders Deficiency for the 53 week period ended
February 29, 2008 and the 52 week period end February 23, 2007
    
    
    19Consolidated Statements of Cash Flows for the 53 week period ended February 29, 2008 and
the 52 week period ended February 23, 2007
    
    
    20Notes to the Consolidated Financial Statements
    
    
    21
  (i)




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FORWARD-LOOKING STATEMENTS
      PART I
 Item 1. Business
  Marketing
  Product Development
  1




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Tactical Flight Combat and G-force / Disorientation Trainers
  Advanced Disaster Management Simulator (ADMS)
     Subsidiaries
  Suppliers
  2




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Patents and Trademarks
  Patent Number
    
    Title
    
    Expiration Date5,051,094
    
    G-Force Trainer
    
    9/24/086,818,178 B2
    
    Method for High Vacuum Sterilization of Closures
    
    1/15/23
 ®  :
 BARA-MED®
    
    Medical Hyperbaric ChamberDATAPRINT®
    
    Digital Printer for SterilizersETC®
    
    Logo for Environmental Tectonics CorporationGAT-II®
    
    General Aviation TrainerG-LAB®
    
    Human Centrifuge/USAF TypeGYROLAB®
    
    Spatial Disorientation DeviceMRC Monster Roll Cage®
    
    Interactive Simulator in the Nature of an
Amusement Ride Machine that incorporates Virtual
Reality EffectsNASTAR®CENTER
    
    The National Aerospace Training & Research CenterTHE RIDE WORKS®
    
    (Facility for) Manufacture of Amusement and
Entertainment Rides to the order and
specification of others.
 ETCs UNREGISTERED (Ô) (SM) TRADEMARKS/SERVICE MARKS are:
 ADMS
    
    Advanced Disaster Management SimulatorATFS
    
    Authentic Tactical Fighting SystemAuthentic Tactical Fighting System
    
    Authentic Tactical Fighting SystemBARA-LAB
    
    Hyperbaric Chamber
(other than medical)BARAPRESS
    
    Hyperbaric Chamber SoftwareBIG MAC
    
    Entertainment ride based on a multi-armed
Centrifuge DeviceCAS
    
    Conditioned Air SupplyDMI
    
    Disaster Management InstituteEAGLE-VISION
    
    Visual Performance/Procedures TrainerEPC
    
    Engine Pressure Controller/Environmental
SystemETC
    
    ETC Biomedical SystemsETC
    
    Entertainment Technology CorporationG-FET
    
    Human Centrifuge
(U.S. Navy type)G-FET-II
    
    Human Centrifuge
(Malaysian Air Force type)G-MAS
    
    Missile Avoidance System
(Centrifuge feature)
 3




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G-POINTINGTM
    
    Motion control algorithm feature; namely, a
feature of Flight Simulators that duplicates
G-force effects experienced during tactical
flight in Class 9.GRAPH MASTER PROGRAMMER
    
    Industrial Sterilizer ControlGUARDIAN MONITORING PACKAGE
    
    GMP features for SterilizersGYRO-1
    
    Multi-purpose basic Instrument Flight TrainerGYRO-SAT
    
    Situational Awareness Trainer
(feature of a Gyrolab)GYROSIM
    
    Gyrolab as a SimulatorLANE MASTER
    
    Automobile Emissions AnalyzerMAC
    
    Entertainment Ride based on a Multi-Armed
Centrifuge DeviceOASIS
    
    Software-driven tool to build Test and
Training Systems and scoring them;
curriculum development, capability
assessment, etc.ProFlyer
    
    Commercial Flight and Navigational
Procedures Trainer meeting European
regulations for civilian pilot training and
certificationPRO-GENESIS
    
    Control Unit/column for SterilizersProTrainer
    
    Commercial Instrument Procedures Trainer
meeting FAAs PCATD requirementsSENTRY 84
    
    Automobile Emissions AnalyzerSMOOTH RIDE
    
    Computer Control Profile for Hyperbaric
ChambersTACModule
    
    Tactical Aircraft Configuration ModuleTNET and/or 
TRAINING NET
    
    Computer Software for training emergency
personnel in firefighting, disaster
management, etc.TESS
    
    Total Emissions Suppression System, EtO
SterilizerThrills Without Ills
    
    Describing ETCs entertainment rides,
particularly those utilizing ETCs Human
Centrifuge Technology, which precludes
motion sickness commonly associated with
motion-based entertainment rides.VPT-1000
    
    Visual Procedures Trainer
 Customers
   Foreign and Domestic Operations and Export Sales
   4




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Manufacturing Facilities
  Sales Backlog
   Competition
      5




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Compliance with Environmental Laws
  Compliance with Export Controls
  Employees
  Item 1A. Risk Factors
 RISKS PARTICULAR TO OUR BUSINESS
 Our business is subject to numerous risks and uncertainties which could cause our actual operating
results and developments to be materially different from those expressed or implied in any of our
public announcements or filings including this Annual Report on Form 10-K for the year ended
February 29, 2008. These risks and uncertainties include the following items. This list is not
inclusive of all the risks and uncertainties associated with our business.
 If we are not taken private through the sale transaction proposed by H. F. Lenfest, we will
continue to incur the significant costs associated with being a public company and we may need to
find additional sources of capital to support our business.
  We are not in compliance with the listing standards of the American Stock Exchange and may be
subject to delisting if we are unable to regain compliance with the applicable listing standards.
  If we cannot identify sufficient funds to operate our business, our results of operations and
financial condition would be materially adversely affected.
 6




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We continue to have major litigation and claims in process and these require a significant amount
of management time and effort. Additionally, legal costs are a major portion of our general and
administrative spending, thus redirecting funds from other operating activities.
  There is a risk of an unfavorable outcome in litigation and resulting negative financial impact on
our operating results.
  Our sources of revenues are not consistent; in any given fiscal year a substantial portion of our
revenues is derived from a small number of customers that may not be recurring customers in future
years.
  Our significant debt could adversely affect our financial resources and prevent us from satisfying
our debt service obligations.
    
    
    our ability to obtain additional financing for working capital, capital expenditures, acquisitions or
other purposes may be impaired or unavailable;
    
    a portion of cash flow may be required to pay interest expense, which will reduce the funds that would
otherwise be available for operations and future business opportunities;
    
    a substantial decrease in net operating cash flows or an increase in expenses could make it difficult for
us to meet our debt service requirements and force us to reduce or modify our operations;
    
    our significant debt may make us more leveraged than our competitors, which may place us at a competitive
disadvantage;
    
    our significant debt may make us more vulnerable to a downturn in our business or in the economy generally;
    
    some of our existing debt contains financial and restrictive covenants that limit our ability to borrow
additional funds, acquire and dispose of assets, and pay cash dividends;
    
    our subordinated debt bears a relatively high interest rate, reflecting the unsecured nature and
correspondingly higher risk associated with this type of financing. This results in higher interest
expense and potential use of cash; and
 7




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
    
    currently our debt bears interest rates which are fixed for short periods of time. However, interest rates
on this debt are subject to adjustment at various times based on market conditions and thus will vary with
the prime rate of interest. Additionally, it is expected that any additional debt which we might incur
would carry a floating rate. If this were the case, any increases in the applicable prime rate of interest
would reduce our earnings.
  We have
introduced a new business model in one of our divisions. If customers do not purchase
these services from us, our business will suffer.
   We need to attain validation from the U.S. defense agencies of our Authentic Tactical Fighting
Systems technology.
  Our operations involve rapidly evolving products and technological change.
  Delays in the delivery of our products may prevent us from invoicing our costs and estimated
earnings on uncompleted contracts.
  In the event we suffer production delays, we may be required to pay certain customers substantial
liquidated damages and other penalties.
  8




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Our fixed-price and cost-reimbursable contracts may commit us to unfavorable terms.
  Our contracts and subcontracts that are funded by the U.S. Government or foreign governments are
subject to government regulations, audits and other requirements.
   Our contracts that are funded by the U.S. Government or foreign governments are subject to a
competitive bidding process that may affect our ability to win contract awards or renewals in the
future.
  Our commercial contracts are subject to competition and strict performance and other requirements.
  9




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There are certain risks inherent in our international business activities, which constitute a
significant portion of our business.
  
    
    the effects of terrorism;
    
    currency exchange rate fluctuations;
    
    a longer and more complicated collections cycle;
    
    a high degree of corruption in some countries;
    
    a general decline in the strength of the global economy;
    
    the effect of foreign military or political conflicts and turmoil;
    
    U.S. foreign policy decisions;
    
    the extent, if any, of anti-American sentiment;
    
    changes in foreign governmental trade, monetary and fiscal policies and laws;
    
    export controls; and
    
    political and economic instability.
     Legislative actions, higher director and officer insurance costs and potential new accounting
pronouncements are likely to cause our general and administrative expenses to increase and impact
our future financial condition and results of operations.
  Our operations could be hurt by terrorist attacks, war and other activities or occurrences that
make air travel difficult or reduce the willingness of our commercial airline customers to purchase
our simulation products.
 10




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There is limited trading activity in our common stock which could make it difficult for our
investors to sell their shares of our common stock.
  The market price of our common stock may be volatile.
  
    
    actual or anticipated operating results;
    
    market conditions in the industry;
    
    announcements by competitors;
    
    results of litigation;
    
    Regulatory actions; and
    
    general economic conditions.
  Our quarterly operating results may vary significantly from quarter to quarter.
  
    
    the number, size and scope of our projects;
    
    the mix of contracts (POC versus other);
    
    equipment purchases and other expenditures required for our business;
    
    the number of bid and proposal efforts undertaken;
    
    delays in sales or production;
    
    the level of employee productivity;
    
    the adequacy of our provisions for receivable, inventory and other losses;
    
    the accuracy of our estimate of resources required to complete ongoing projects; and
    
    general economic conditions.
  Our officers and directors own a significant amount of our common stock which permits them to exert
significant influence over the direction of our business and affairs.
  Item 2. Properties
  11




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12




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Item 3. Legal Proceedings
 U.S. Navy
   Walt Disney World Co.
  Other Matters
  Item 4. Submission of Matters to a Vote of Security Holders
  13




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PART II
 Item 5. Market for the Registrants Common Stock and Related Security Holder Matters
          14




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Sale PricesHigh
    
    
    LowFiscal 2008First Quarter
    
    $
    4.78
    
    
    $
    3.26Second Quarter
    
    
    3.29
    
    
    
    2.21Third Quarter
    
    
    3.94
    
    
    
    2.15Fourth Quarter
    
    
    2.50
    
    
    
    1.50Fiscal 2007First Quarter
    
    $
    5.54
    
    
    $
    4.60Second Quarter
    
    
    7.39
    
    
    
    5.16Third Quarter
    
    
    6.39
    
    
    
    4.71Fourth Quarter
    
    
    4.86
    
    
    
    3.19
  15




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Item 8. Financial Statements and Supplementary Data
  Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
   Item 9A. Controls and Procedures
    Internal Control  Integrated
Framework Internal Control  Integrated Framework,
   
    
    The Company did not file its Quarterly Reports on Form 10-Q for the quarters ended
May 23, 2007, August 24, 2007 and November 23, 2007 on a timely basis.
    
    Management had a lack of expertise in accounting for complex transactions.
    
    The Company lacked an independent review of the accounting records.
    
    Management exhibited a lack of training in compliance with government contracts.
 16




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17




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PART III
 Item 10. Directors and Executive Officers of the Registrant
  Served as DirectorName
    
    Age
    
    or Officer Since (1)
    
    Positions and OfficesWilliam F. Mitchell (2)
    
    
    66
    
    
    
    1969
    
    
    Chairman of the Board,
President and DirectorHoward W. Kelley (3)
    
    
    66
    
    
    
    2002
    
    
    DirectorGeorge K. Anderson, M.D. (4)
    
    
    62
    
    
    
    2003
    
    
    DirectorH.F. Lenfest (5)
    
    
    78
    
    
    
    2003
    
    
    DirectorAlan M. Gemmill (6)
    
    
    61
    
    
    
    2006
    
    
    DirectorDuane D. Deaner (7)
    
    
    60
    
    
    
    1996
    
    
    Chief Financial Officer
 
 (1)
    
    Directors are elected for one-year terms.(2)
    
    Mr. Mitchell has been our Chairman of the Board, President and Chief Executive Officer since
1969, except for the period from January 24, 1986 through January 24, 1987, when he was
engaged principally in soliciting sales for our products in the overseas markets. Mr. Mitchell
received a Bachelor of Science degree in physics from Drexel University and has completed
graduate work in mechanical and electrical engineering. He is a member of the ASME and Drexel
University engineering advisory boards. Additionally, he is a member of the Society of
Automotive/Aerospace Engineering, the International Society of Pharmaceutical Engineering, the
Undersea and Hyperbaric Medical Society, the Aerospace Medical Association, the American
Society of Mechanical Engineering and the Institute of Environmental Sciences.(3)
    
    Mr. Kelley recently retired as President of Sally Corporation, Jacksonville, Florida, which
is one of the oldest and largest designers and fabricators of animation robotics and dark ride
attractions used worldwide in theme parks, museums and entertainment attractions. He remains a
director of this company. Mr. Kelly is also director of American Electric Technologies, Inc.
(NASDAQ: AETI). AETI is a Houston, Texas-based manufacturer of power delivery equipment for
traditional and alternative energy industries. He is also currently president of Aspergantis
LLC, a technology and Internet services and consulting company. He previously spent over 25
years in the broadcasting industry, including ten years in television management as a news
director and later as Vice President and General Manager of Channel 12 WTLV (NBC) in
Jacksonville, Florida. He is the former Chairman of the Board of Tempus Software, a medical
software development firm located in Jacksonville, Florida. He has also previously served as
broadcast strategic planner for a major U.S. communications company and as director of several
U.S. technology firms with international business activities. In the academic arena, Mr.
Kelley serves as an executive professor at the University of North Florida College of Business
Administration, and is a college adjunct instructor on Internet technology and E-commerce on
the Internet. He is a graduate of the University of Florida and Harvard Business School PMD.(4)
    
    Dr. Anderson is an experienced physician executive. He served in the Air Force as a flight
surgeon, aerospace medicine staff officer, and commander of several medical organizations in
Korea, Germany, and United States. He retired from active duty in the grade of Major General.
Following his thirty years of military service, he transitioned to executive positions in the
private sector. He served as Chief Executive Officer of the Koop Foundation from 1997 to 1998
and as Chief Executive Officer at Oceania, Inc., a medical software company, from 1999 to
2001. A period of practice as an independent medical technology consultant was followed by his
current role as Executive Director of the Association of Military Surgeons of the United
States (AMSUS). AMSUS, the nonprofit Society of the Federal Health agencies, operates from a
headquarters located in Bethesda, Maryland.(5)
    
    Mr. Lenfest practiced law with Davis Polk & Wardwell before joining Triangle Publications,
Inc., in Philadelphia as Associate Counsel in 1965. In 1970, Mr.
Lenfest was placed in charge of Triangles Communications Division, serving as Editorial
Director and Publisher of Seventeen Magazine and President of the CATV Operations. In 1974,
Mr. Lenfest, with the support of two investors, formed Lenfest Communications, Inc., which
purchased Suburban Cable TV Company and Lebanon Valley Cable TV Company from Triangle with a
total of 7,600 subscribers. In January 2000, Mr. Lenfest sold his cable television operations,
which by then served 1.2 million subscribers, to Comcast Corporation. Mr. Lenfest is the owner
of various other businesses and is active in many philanthropic activities including as
Chairman of the Board of the Philadelphia
 18




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Museum of Art, the Curtis Institute, and the Lenfest Foundation. Mr. Lenfest is a graduate
of Washington and Lee University and Columbia Law School.(6)
    
    Mr. Gemmill is a retired U.S. Navy Rear Admiral. He graduated from the University of Arizona
with a B.S. in Aerospace Engineering and began his flying career flying F-4 Phantoms. He
graduated first in his class from U.S. Naval Test Pilot School in Patuxuent River, Maryland in
1974. After a stint as a test pilot and test pilot instructor, Mr. Gemmill then served
numerous positions in Fighter Squadrons including command of F-14 Fighter Squadron 32. He
commanded USS San Jose during two deployments to the Arabian Gulf during Desert Shield and
Desert Storm, and then commanded the nuclear aircraft carrier USS DWIGHT D EISENHOWER. From
1995 through 1999, he served as Deputy for Readiness and then for Operations for the U.S.
Pacific Command and later as Assistant Deputy Chief of Staff for Aviation, U.S. Marine Corps.
His last assignment in the Navy was as Head, Aircraft Carriers Program and Head, Naval
Aviation Training. Rear Admiral Gemmill has almost 4,000 flight hours and 1,000 carrier
landings. He has a Master of Science in Systems Management from the University of Southern
California. He is currently Director, Defense Business Services for Bearing Point of McLean,
VA.(7)
    
    Mr. Deaner has served as our Chief Financial Officer since January 1996. Mr. Deaner served as
Vice President of Finance for Pennfield Precision Incorporated from September 1988 to December
1995. Mr. Deaner received an MBA in Finance from Temple University and a B.A. in Mathematics
from Millersville University in Pennsylvania.
 Committees of the Board of Directors
   GovernanceName of Director
    
    Independent
    
    Audit
    
    Compensation
    
    and NominatingHoward W. Kelley
    
    Yes
    
    Chair
    
    
    X
    
    
    
    XDr. George K. Anderson
    
    Yes
    
    
    X
    
    
    
    X
    
    
    ChairAlan Mark Gemmill
    
    Yes
    
    
    X
    
    
    Chair
    
    
    XNumber of Meetings
Held in Fiscal Year
    
    
    
    
    22
    
    
    
    5
    
    
    
    5
    Code of Ethics
 www.etcusa.com.
 19




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Administrative Agreement
  Compliance With Section 16(a) of the Exchange Act
   20




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Item 11. Executive Compensation
 COMPENSATION DISCUSSION AND ANALYSIS
 Objectives and Philosophy of Executive Compensation
   Primary Components of Executive Compensation
   Base Salary
  Short-term Incentive Compensation
   Long-Term Incentive Compensation
  21




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Option Grant Date Pricing
   Chief Executive Officer Employment Agreement
   Chief Financial Officer Employment Agreement
   22




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SUMMARY COMPENSATION TABLE
  Change in PensionValue andNonqualifiedNon-Equity
    
    
    DeferredIncentive Plan
    
    
    Compensation
    
    
    All OtherName and Principal Position
    
    Year
    
    
    Salary
    
    
    Bonus
    
    
    Stock Awards
    
    
    Option Awards
    
    
    Compensation
    
    
    Earnings
    
    
    Compensation
    
    
    Total(a)
    
    (b)
    
    
    (c)
    
    
    (d)
    
    
    (e)
    
    
    (f)
    
    
    (g)
    
    
    (h)
    
    
    (i)
    
    
    (j)William F. Mitchell1
    
    
    2008
    
    
    $
    225,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    69,000
    2
    
    $
    294,000Chairman of the Board,
    
    
    2007
    
    
    $
    225,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    75,000
    3
    
    $
    300,000Chief Executive Officer,President and DirectorDuane D. Deaner 4
    
    
    2008
    
    
    $
    102,000
    
    
    $
    1,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,000
    5
    
    $
    107,000Chief Financial Officer
    
    
    2007
    
    
    $
    98,000
    
    
    $
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,000
    6
    
    $
    107,000
  
 1
    
    ETC is party to an employment agreement with Mr.
Mitchell, pursuant to which Mr. Mitchell serves as President and Chief
Executive Officer. The terms and conditions of Mr. Mitchells employment
agreement is summarized above under Primary Components of Executive
Compensation-Chief Executive Officer Employment Agreement.2
    
    Consists of $54,000 paid to Mr. Mitchell in connection
with ETCs use of Mr. Mitchells properties, $6,000 in automobile allowance
payments for Mr. Mitchells company automobile, $6,000 in life insurance
premium payments and $3,000 contribution on behalf of Mr. Mitchell pursuant to
ETCs Retirement Savings Plan.3
    
    Consists of $60,000 paid to Mr. Mitchell in connection with ETCs
use of Mr. Mitchells properties, $6,000 in automobile allowance payments for
Mr. Mitchells company automobile, $6,000 in life insurance premium payments
and $3,000 contribution on behalf of Mr. Mitchell pursuant to ETCs Retirement
Savings Plan.4
    
    ETC is a party to an employment agreement with Mr.
Deaner, pursuant to which Mr. Deaner serves as Chief Financial Officer. The
terms and conditions of Mr. Deaners employment agreement is summarized above
under Primary Components of Executive Compensation-Chief Financial Officer
Employment Agreement.5
    
    Consists of ETCs contribution on behalf of Mr. Deaner
pursuant to ETCs Retirement Savings Plan.6
    
    Consists of ETCs contribution on behalf of Mr. Deaner
pursuant to ETCs Retirement Savings Plan. 23




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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
  Number ofNumber of Securities
    
    
    SecuritiesUnderlying
    
    
    Underlying
    
    
    Option ExerciseUnexercised Options
    
    
    Unexercised Options
    
    
    Price
    
    
    Option ExpirationName
    
    (#) Exercisable
    
    
    (#) Unexercisable
    
    
    ($)
    
    
    Date(a)
    
    (b)
    
    
    (c)
    
    
    (e)
    
    
    (f)William F. Mitchell
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chairman of the Board,Chief Executive Officer,President and DirectorDuane D. Deaner
    
    
    10,000
    
    
    
    
    
    
    $
    7.81
    
    
    
    2/25/09Chief Financial Officer
    
    
    2,881
    
    
    
    
    
    
    $
    7.375
    
    
    
    1/03/115,233
    
    
    
    1,745
    
    
    $
    7.24
    
    
    
    9/15/14321
    
    
    
    321
    
    
    $
    6.07
    
    
    
    9/21/16
 Potential Payments Upon Termination or Change-In-Control
   Compensation of Directors
 .
 24




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FISCAL 2008 DIRECTOR COMPENSATION TABLE
 Change in PensionValue andFees Earned
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    Nonqualifiedor Paid
    
    
    
    
    
    
    
    
    
    Incentive Plan
    
    Deferred
    
    All Otherin Cash
    
    Stock Awards
    
    Option Awards
    
    Compensation
    
    Compensation
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)7
    
    ($)
    
    ($)
    
    Earnings ($)
    
    ($)
    
    ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)William F. Mitchell
8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    George K. Anderson, M.D. 9
    
    $
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,000Alan M. Gemmill10
    
    $
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,000Howard W. Kelley11
    
    
    
    
    
    $
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,000H. F. Lenfest12
    
    
    
    
    
    $
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,000
 
 7
    
    ETC used the closing price of its common stock on the
date of grant as reported on the American Stock Exchange to compute the value
of these awards.8
    
    Mr. Mitchell did not hold any options to purchase shares
of our common stock as of February 29, 2008.9
    
    Dr. Anderson held options to purchase an aggregate of
50,000 shares of our common stock as of February 29, 200810
    
    Mr. Gemmill held options to purchase an aggregate of
5,000 shares of our common stock as of February 29, 2008.11
    
    Mr. Kelley held options to purchase an aggregate of
25,000 shares of our common stock as of February 29, 2008.12
    
    Mr. Lenfest did not hold any options to purchase shares
of our common stock as of February 29, 2008. 25




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##### 



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  Amount andNature of
    
    PercentName and Address
    
    Beneficial
    
    ofof Beneficial Owner
    
    Ownership (1)
    
    Common StockWilliam F. Mitchell (2)
    
    
    1,068,375
    (3)
    
    
    11.8
    %c/o Environmental Tectonics Corporation
County Line Industrial Park 
Southampton, PA 18966Howard W. Kelley (4)
    
    
    33,168
    (5)
    
    
    *c/o
Aspergantis LLC
3249 St. Johns Avenue
Jacksonville, FL 32205George K. Anderson, M.D. (4)
    
    
    51,100
    (6)
    
    
    1.0
    %8 Little Harbor Way 
Annapolis, MD 21403H.F. Lenfest (4)
    
    
    6,332,900
    (7)
    
    
    48.7
    %c/o The Lenfest Group 
Fire Tower Bridge-Suite 460
300 Barr Harbor Drive 
West Conshohocken, PA 19428Alan M. Gemmill (4)
    
    
    5,200
    (8)
    
    
    *941 Upper Hastings Way
Virginia Beach, VA 23452T. Todd Martin, III
    
    
    999,592
    (9)
    
    
    11.1
    %50 Midtown Park East
Mobile, AL 36606Emerald Advisors, Inc.
    
    
    725,998
    (10)
    
    
    8.0
    %1703 Oregon Pike
Suite 101
Lancaster, PA 17601Pete L. Stephens, M.D.
    
    
    653,723
    (11)
    
    
    7.2
    %31 Ribaut Drive
Hilton Head Island, SC 29926All directors and executive 
officers as a group (6 persons)
    
    
    7,509,178
    (12)
    
    
    57.3
    %
 
 *
    
    less than 1%(1)
    
    Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934. Unless otherwise noted, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of our common stock
beneficially owned by them.(2)
    
    Chairman of the Board, President, Chief Executive Officer and Director of the Corporation.(3)
    
    Includes 45,200 shares of common stock held by Mr. Mitchells wife.(4)
    
    Director of the Company. 26




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##### 



(5)
    
    Includes 25,000 shares of common stock which may be acquired upon the exercise of options
granted under our Non-Employee Director Stock Option Plan that are presently exercisable.(6)
    
    Includes 50,000 shares of common stock which may be acquired upon the exercise of options
granted under our Non-Employee Director Stock Option Plan that are presently exercisable.(7)
    
    Includes 1,818,181 shares of common stock issuable upon conversion of a promissory note in
the principal amount of $10,000,000, 606,060 shares of common stock issuable upon conversion
of 3,000 shares of Series B Preferred Stock issued on April 6, 2006, 449,101 shares of common
stock issuable upon conversion of 3,000 shares of Series B Preferred Stock issued on July 31,
2006, and 1,089,108 shares of common stock issuable upon conversion of 3,300 shares of Series
C Preferred Stock issued on August 23, 2007.(8)
    
    Includes 5,000 shares of common stock which may be acquired upon the exercise of options
granted under our Non-Employee Director Stock Option Plan that are presently exercisable.(9)
    
    Includes 938,692 shares of common stock owned by Advanced Technology Asset Management, LLC
(formerly ETC Asset Management, LLC) (ATAM), a limited liability company of which T. Todd
Martin, III is manager. Also includes 26,900 shares owned by Allied Williams Co, Inc., a
corporation of which Mr. Martin is an officer and director, 17,000 shares owned by Equity
Management, LLC, a limited liability company of which Mr. Martin is manager, 7,000 shares
owned by trusts of which Mr. Martin is trustee, and 10,000 shares owned by Perdido Investors,
LLC, of which Mr. Martin is the manager.(10)
    
    Emerald Advisors, Inc., has sole voting power with respect to 193,833 shares of common stock
and sole dispositive power over 592,926 shares of common stock.(11)
    
    Includes 638,023 shares of common stock held jointly with Dr. Stephens wife and 15,700
shares of common stock held by Dr. Stephens children.(12)
    
    Includes 80,000 shares of common stock which may be acquired by members of the Board of
Directors upon the exercise of options granted under our Non-Employee Director Stock Option
Plan that are presently exercisable, 1,818,181 shares of common stock issuable upon conversion
of a promissory note in the principal amount of $10,000,000, 606,060 shares of common stock
issuable upon conversion of 3,000 shares of Preferred Stock issued on April 6, 2006, 449,101
shares of common stock issuable upon conversion of 3,000 shares of Preferred Stock issued on
July 31, 2006, and 1,089,108 shares of common stock issuable upon conversion of 3,300 shares
of Preferred Stock issued on August 23, 2007, all of which may be acquired by Mr. Lenfest, and
18,435 shares of common stock which may be acquired by Duane Deaner, our chief financial
officer, upon the exercise of options granted under our Incentive Stock Option Plan that are
presently exercisable.  Item 13. Certain Relationships and Related Transactions and Director Independence
   27




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##### 



Other Related Party Transactions
   28




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##### 



29




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##### 



Item 14. Principal Accounting Fees and Services
    FY 2008
    
    
    FY 2007Audit Fees
    
    $
    146,675
    
    
    $
    158,862Audit related fees (1)
    
    
    57,222
    
    
    
    28,669Audit and audit related fees
    
    
    203,897
    
    
    
    187,531Tax fees (2)
    
    
    24,882
    
    
    
    29,721Total fees
    
    $
    228,779
    
    
    $
    217,252
 
 (1)
    
    Audit related fees consist of fees related to the U. S. Government claim issue
and employee benefit plan audits.(2)
    
    Tax fees consist of tax compliance services and other consultations on miscellaneous tax
matters. 30




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##### 



PART IV
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    
    Exhibits:
 Number
    
    Item3.1
    
    Registrants Articles of Incorporation, as amended, were filed as Exhibit 3.1. to Registrants Form
10-K for the year ended February 28, 1997 and are incorporated herein by reference.3.1(i)
    
    Statement with respect to shares of Series B Cumulative Convertible Participating Preferred Stock,
filed as Exhibit 3(i) 1, to Registrants Form 8-K dated April 6, 2006, and incorporated herein by
reference.3.1(ii)
    
    Statement with respect to shares of Series C Cumulative Convertible Participating Preferred Stock
was filed as Exhibit 3(i) 1, to Registrants Form 8-K dated August 28, 2007, and incorporated herein
by reference.3.2
    
    Registrants amended and restated By-Laws were filed as Exhibit 3.2 to Registrants Form 8-K dated
May 25, 2005, and are incorporated herein by reference.4.1
    
    $10,000,000 Senior Subordinated Convertible Note, dated February 18, 2003, issued by the Registrant
in favor of H.F. Lenfest was filed on February 25, 2003 as Exhibit 4.1 to Form 8-K and is
incorporated herein by reference.4.2
    
    Unsecured $1 million Promissory Note, dated June 28, 2007 executed by the Registrant in favor of
H.F. Lenfest, was filed on June 28, 2007 as Exhibit 10.1 to Form 8-K and is incorporated by
reference.4.3
    
    $15 million Committed Line of Credit Note,, dated as of July 31, 2007 issued by the Registrant in
favor of and PNC Bank, National Association, was filed on August 3, 2007 as Exhibit 10.2 to Form 8-K
and is incorporated by reference4.4
    
    First Amendment to Senior Subordinated Convertible Note, effective as of February 19, 2008, by the
Registrant in favor of H.F. Lenfest was filed on was filed on March 11, 2008 as Exhibit 10.2 to Form
8-K and is incorporated by reference.10.1
    
    Registrants 1998 Stock Option Plan was filed on October 8, 1998 on Form S-8 and is incorporated
herein by reference. *10.2
    
    Registrants Employee Stock Purchase Plan was filed on July 6, 1988 as Exhibit A to the Prospectus
included in Registrants Registration Statement (File No. 33-42219) on Form S-8 and is incorporated
herein by reference. *10.3
    
    Registrants Stock Award Plan adopted April 7, 1993, was filed as Exhibit 10(ix) to the Registrants
Form 10-K for the fiscal year ended February 25, 1994 and is incorporated herein by reference. *10.4
    
    Convertible Note and Warrant Purchase Agreement, dated February 18, 2003, by and between the
Registrant and Lenfest was filed on February 25, 2003 as Exhibit 10.8 to Form 8-K and is
incorporated herein by reference.10.5
    
    Registration Rights Agreement, dated as of February 18, 2003, by and between the Registrant and H.F.
Lenfest was filed on February 25, 2003 as Exhibit 10.9 to Form 8-K and is incorporated herein by
reference.10.6
    
    Security Agreement, made and entered into as of February 18, 2003, by and among the Registrant,
Entertainment Technology Corporation, ETC Delaware, Inc. and H.F. Lenfest was filed on February 25,
2003 as Exhibit 10.10 to Form 8-K and is incorporated herein by reference.10.7
    
    Guaranty, dated as of February 18, 2003, made by Entertainment Technology Corporation and ETC
Delaware, Inc. in favor of H.F. Lenfest was filed on February 25, 2003 as Exhibit 10.11 to Form 8-K
and is incorporated herein by reference.10.8
    
    Open-End Mortgage and Security Agreement, made as of February 18, 2003, by the Registrant in favor
of H.F. Lenfest was filed on February 25, 2003 as Exhibit 10.12 to Form 8-K and is incorporated
herein by reference.10.9
    
    Subordination and Intercreditor Agreement, dated as of February 18, 2003, among PNC Bank, H.F.
Lenfest and the Registrant was filed on February 25, 2003 as Exhibit 10.13 to Form 8-K and is
incorporated herein by reference.10.10
    
    Limited Guaranty Agreement, dated as of August 24, 2004, of H.F. Lenfest in favor of PNC Bank,
National Association, was filed on September 10, 2004 as Exhibit 10.3 to Form 8-K and is
incorporated herein by reference.10.11
    
    Subscription Agreement, dated as of February 14, 2005, between the Registrant and H.F. Lenfest, was
filed on February 16, 2005 as Exhibit 10.1 to Form 8-K and is incorporated herein by reference.
 31




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##### 



Number
    
    Item10.12
    
    2005 Non-employee Director Stock Option Plan, incorporated by reference to Annex A of Registrants
Definitive Proxy Statement on Schedule 14A filed on August 16, 2005 and incorporated herein by
reference. *10.13
    
    Preferred Stock Purchase Agreement between the Registrant and H.F. Lenfest, dated as of April 6,
2006, filed as Exhibit 10.1 to Registrants Form 8-K dated April 6, 2006, and incorporated herein by
reference.10.14
    
    Registration Rights Agreement between the Registrant and H.F. Lenfest, dated as of April 6, 2006,
filed as Exhibit 10.2 to Registrants Form 8-K dated April 6, 2006, and incorporated herein by
reference.10.15
    
    Reimbursement Agreement, dated as of November 16, 2006, between the Registrant and PNC Bank,
National Association, was filed on November 20, 2006 as Exhibit 10.2 to Form 8-K and is incorporated
herein by reference.10.16
    
    Restated Subordination and Intercreditor Agreement, dated as of November 16, 2006, between the
Registrant and H.F. Lenfest, was filed on November 20, 2006 as Exhibit 10.3 to Form 8-K and is
incorporated herein by reference.10.17
    
    Restated Limited Guaranty Agreement, dated as of November 16, 2006, between the Registrant and H.F.
Lenfest, was filed on November 20, 2006 as Exhibit 10.4 to Form 8-K and is incorporated herein by
reference.10.18
    
    Employment Agreement, dated as of November 1, 2005, between Registrant and Duane D. Deaner, Chief
Financial Officer was filed on May 24, 2007 as Exhibit 10.33 to
the Registrants Form 10-K for the fiscal year ended
February 23, 2007, and is incorporated herein by reference.*10.19
    
    Employment Agreement, dated as of July 24, 2006, between Registrant and William F. Mitchell , was
filed on July 24, 2006 as Exhibit 10.1 to Form 8-K and is incorporated herein by reference.*10.20
    
    Credit Agreement, dated as of July 31, 2007 between the Registrant and PNC Bank, National
Association, was filed on August 3, 2007 as Exhibit 10.1 to Form 8-K and is incorporated by
reference.10.21
    
    Agreement between Registrant and
H.F. Lenfest, dated as of May 9, 2007 was filed on May 24,
2007 as Exhibit 10.34 to the Registrants Form 10-K for the
fiscal year ended February 23, 2007, and is incorporated herein
by reference.10.22
    
    Amended and Restated Reimbursement Agreement for Letters of Credit, dated as of July 31, 2007 issued
by the Registrant in favor of and PNC Bank, National Association was filed on August 3, 2007 as
Exhibit 10.2 to Form 8-K and is incorporated by reference.10.23
    
    Amended and Restated Subordination and Intercreditor Agreement, dated as of July 31, 2007 among the
Registrant, PNC Bank, National Association and H.F. Lenfest, was filed on August 3, 2007 as Exhibit
10.2 to Form 8-K and is incorporated by reference.10.24
    
    Restated Guaranty Agreement, dated as of July 31, 2007 by H.F. Lenfest in favor of PNC Bank,
National Association, was filed on August 3, 2007 as Exhibit 10.2 to Form 8-K and is incorporated by
reference10.25
    
    Series C Preferred Stock Purchase Agreement, dated as of August 23, 2007, between the Registrant and
H.F. Lenfest as Exhibit 10.1 to Form 8-K and is incorporated by reference.10.26
    
    Registration Rights Agreement, dated as of August 23, 2007, between the Registrant and H.F. Lenfest
as Exhibit 10.2 to Form 8-K and is incorporated by reference.10.27
    
    Letter Agreement, dated as of August 23, 2007, between the Registrant and H.F. Lenfest was filed on
August 28, 2007 as Exhibit 10.3 to Form 8-K and is incorporated by reference.10.28
    
    Administrative Agreement dated as of December 12, 2007 between the Registrant and the Department of
the Navy was filed on December 18, 2007 as Exhibit 10.1 to Form 8-K and is incorporated by
reference.10.29
    
    Credit Agreement and Waiver and Amendment between the Registrant and PNC Bank, National Association,
dated January 31, 2008 was filed on February 5, 2008 as Exhibit 10.1 to Form 8-K and is incorporated
by reference.10.30
    
    Settlement Agreement between the Registrant and the Department of the Navy dated as of February 22,
2008 was filed on February 26, 2008 as Exhibit 10.1 to Form 8-K and is incorporated by reference.10.31
    
    Amendment No.1 to Convertible Note and Warrant Purchase Agreement, effective as of February 19,
2008, by and between the Registrant and H.F. Lenfest was filed on March 11, 2008 as Exhibit 10.1 to
Form 8-K and is incorporated by reference.10.32
    
    Letter Agreement between Registrant and H.F. Lenfest, dated as of May 20, 2008. (Filed herewith)13
    
    Portions of Registrants 2008 Annual Report to Shareholders which are incorporated by reference into
this Form 10-K.14
    
    Code of Ethics was filed on May 24, 2007 as Exhibit 14 to Form 10-K and is incorporated by reference.16.1
    
    Letter from Grant Thornton LLP dated as of November 28, 2007 was filed on December 4, 2007 as
Exhibit 16.1 to Form to 8-K and is incorporated by reference.
 32




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##### 



Number
    
    Item21
    
    Subsidiaries of the Registrant (Filed herewith).23
    
    Consent of Friedman LLP dated May 29, 2008. (Filed herewith)31.1
    
    Certification dated May 29, 2008 pursuant to Rule 13a-14(a) under the Securities Exchange Act of
1934 made by William F. Mitchell, Chief Executive Officer. (Filed herewith)31.2
    
    Certification dated May 29, 2008 pursuant to Rule 13a-14(a) under the Securities Exchange Act of
1934 made by Duane D. Deaner, Chief Financial Officer. (Filed herewith)32
    
    Certification dated May 29, 2008 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 made by William F. Mitchell, Chief Executive Officer and Duane
D. Deaner, Chief Financial Officer. (Filed herewith)99.1
    
    Proposal Letter from H.F. Lenfest was filed on February 22, 2008 as Exhibit 99.2 on Form 8-K and is
incorporated herein by reference.
 
 *
    
    Represents a management contract or a compensatory plan or arrangement. 33




---



##### 



SIGNATURES
  ENVIRONMENTAL TECTONICS CORPORATIONBy
    /s/ William F. MitchellWilliam F. Mitchell,President and Chief Executive Officer  Name
    
    Position
    
    Date/s/ William F. Mitchell

William F. Mitchell
    
    Chairman of the Board,
Chief Executive Officer,
President and Director (Principal
Executive Officer)
    
    May 29, 2008/s/ Duane D. Deaner

Duane D. Deaner
    
    Chief Financial Officer
(Principal Financial and
Accounting Officer)
    
    May 29, 2008/s/ Howard W. Kelley

Howard W. Kelley
    
    Director
    
    May 29, 2008/s/ H.F. Lenfest

H.F. Lenfest
    
    Director
    
    May 29, 2008/s/ George K. Anderson

George K. Anderson, M.D.
    
    Director
    
    May 29, 2008/s/ Alan M. Gemmill

Alan M. Gemmill
    
    Director
    
    May 29, 2008
 34




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##### 



EXHIBIT INDEX
 ExhibitNo.
    
    Item13
    
    Portions of Registrants 2008 Annual Report to Shareholders which are incorporated by reference into this Form 10-K.21
    
    Subsidiaries of the Registrant.23
    
    Consent of Friedman LLP.31.1
    
    Certification dated May 29, 2008 pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 made by
William F. Mitchell, Chief Executive Officer.31.2
    
    Certification dated May 29, 2008 pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 made by Duane
D. Deaner, Chief Financial Officer.32
    
    Certification dated May 29, 2008 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 made by William F. Mitchell, Chief Executive Officer and Duane D. Deaner, Chief
Financial Officer.